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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File Number: 0-14146
S2 GOLF INC.
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(Exact Name of Registrant as Specified in its Charter)
New Jersey 22-2388568
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18 Gloria Lane, Fairfield, NJ 07004
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(Address of Principal Executive Office) (Zip Code)
(201) 227-7783
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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On July 25, 1997, 2,215,604 shares of common stock, $.01 par value, were issued
and outstanding.
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<PAGE>
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
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<S> <C> <C>
Item 1. Financial Statements
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Balance Sheets - June 30, 1997 and December 31, 1996 2
Statements of Operations - Six Months Ended
June 30, 1997 and June 30, 1996 3
Statements of Operations-Three Months Ended
June 30, 1997 and June 30, 1996 4
Statements of Cash Flow - Six Months Ended
June 30, 1997 and June 30, 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
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Condition and Results of Operations 7
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
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Signatures 12
</TABLE>
<PAGE>
PART I
Item 1. Financial Statements
S2 GOLF INC.
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
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ASSETS (Unaudited)
<S> <C> <C>
Current Assets
Cash $ 111,190 $ 166,592
Accounts Receivable (Net of Allowance
for Doubtful Accounts $186,535 in 1997
and $250,131 in 1996 3,470,147 2,429,680
Inventory 2,450,921 1,873,201
Prepaid Expenses 25,746 42,353
Deferred Income Taxes 271,987 150,131
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Total Current Assets 6,329,991 4,661,957
Plant and Equipment - Net 98,893 112,660
Non-Current Deferred Income Taxes 126,408 187,758
Other Assets - Net 171,331 191,276
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Total Assets $6,726,623 $5,153,651
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $2,434,786 $1,772,246
Accounts Payable 498,611 230,090
Accrued Expenses 386,283 195,301
Other Current Liabilities 57,498 62,416
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Total Current Liabilities 3,377,178 2,260,053
Non-Current Liabilities 228,439 253,498
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Total Liabilities 3,605,617 2,513,551
Commitments and Contingencies
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000
Authorized Shares: 2,214,742 and 2,208,311 Issued and
Outstanding at June 30, 1997 and December 31, 1996
22,147 22,083
Additional Paid in Capital 4,032,410 4,025,475
Accumulated Deficit (933,551) (1,407,458)
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Total Shareholders' Equity 3,121,006 2,640,100
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Total Liabilities and Shareholders' Equity $6,726,623 $5,153,651
========== ==========
</TABLE>
See notes to financial statements
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S2 GOLF INC.
Statements of Operations
For the Six Months Ended
Unaudited
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
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<S> <C> <C>
Net Sales $6,272,567 $4,995,640
Cost of Goods Sold 4,320,637 3,352,394
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Gross Profit 1,951,930 1,643,246
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Operating Expenses:
Selling 759,373 757,375
General & Administrative 553,639 623,957
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Total Operating Expenses 1,313,012 1,381,332
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Operating Income 638,918 261,914
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Other Income (Expense)
Interest Expense (162,077) (124,702)
Other Expense (5,504) (34,547)
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Other - Net (167,581) (159,249)
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Income Before Income Taxes 471,337 102,665
Provision (Benefit) for Taxes (2,570) 10,438
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Net Income $473,907 $92,227
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Earnings Per Common Share $0.21 ($0.04)
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Weighted Average Number of Shares Outstanding 2,211,742 2,208,311
</TABLE>
See notes to financial statements
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<PAGE>
S2 GOLF INC.
Statements of Operations
For the Three Months Ended
Unaudited
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
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<S> <C> <C>
Net Sales $3,435,134 $2,931,594
Cost of Goods Sold 2,342,422 1,931,582
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Gross Profit 1,092,712 1,000,012
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Operating Expenses:
Selling 374,441 370,176
General & Administrative 287,717 312,646
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Total Operating Expenses 662,158 682,822
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Operating Income 430,554 317,190
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Other Income (Expense)
Interest Expense (103,489) (72,753)
Other Expense (5,001) (18,547)
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Other - Net (108,490) (91,300)
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Income Before Income Taxes 322,064 (225,890)
Provision (Benefit) for Taxes (12,716) 58,480
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Net Income $334,780 $167,410
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Earnings Per Common Share $0.15 $0.08
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Weighted Average Number of Shares Outstanding 2,211,742 2,208,311
</TABLE>
See notes to financial statements
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<PAGE>
S2 GOLF INC.
Statement of Cash Flows
For the Six Months Ended
Unaudited
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
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Net Income $473,907 $92,227
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 76,532 26,868
Deferred Income Taxes (60,506) (70,610)
Issuance of Stock for Compensation 6,999
Cash Flow Provided (Used) by Operating Activities as a
Result of Changes in:
Accounts Receivable (1,040,467) (955,859)
Inventory (577,720) (528,658)
Prepaid Expenses 16,607 59,548
Other Assets (30,689) 53,884
Accounts Payable and Accrued Expenses 459,503 662,630
Other - Net (29,977) (29,269)
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NET CASH USED IN OPERATIONS (705,811) (689,230)
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INVESTING ACTIVITIES
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Purchase of Equipment (11,930) (7,616)
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NET CASH USED IN INVESTING ACTIVITIES (11,930) (7,616)
FINANCING ACTIVITIES
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Proceeds from Line of Credit 6,412,370 4,866,734
Payments on Line of Credit (5,750,031) (4,146,708)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 662,339 740,026
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(DECREASE) INCREASE IN CASH (55,402) 43,171
CASH - BEGINNING OF PERIOD 166,592 18,995
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CASH - END OF PERIOD $111,190 $62,166
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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Cash Paid During the period:
Interest 136,889 102,607
</TABLE>
See notes to financial statements
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<PAGE>
S2 GOLF, INC.
Notes to Financial Statements
Summary of Significant Accounting Policies
In the opinion of management, the financial information in this report reflects
all adjustments necessary for a fair presentation of the results for the interim
periods consisting of normal recurring entries. No dividends have been declared
or paid on common stock. Per share data was determined by using the weighted
average number of shares of common stock outstanding during the period.
In February 1997, the FASB issued Statement No. 128 "Earnings Per Share", which
simplifies the standards for computing Earnings Per Share (EPS) and makes them
comparable to International EPS Standards. Statement No. 128 replaces standards
for computing and presenting EPS found in Accounting Principles Board Opinion
No. 15, "Earnings Per Share" (APB.15) Statement No. 128 requires dual
presentation of Basic EPS (which replaces APB15 Primary EPS) and Diluted EPS on
the face of the income statement for all entities with complex capital
structures. Statement No. 128 will be effective for the 1997 Annual Report,
including interim periods to be presented therein; however, earlier application
is not permitted. Had Statement No. 128 been effective for the second quarter
1997, Basic and Diluted EPS would have no effect on the Company's Earnings Per
Share.
Accounting for Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. The tax effects of significant items comprising
the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
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<S> <C> <C>
Allowance for Doubtful Accounts $ 90,558 $ 115,981
Legal Settlement 191 191
Accrued Expenses 150,617 90,274
Other, Net 72,045 60,457
Valuation Allowance (41,424) (116,772)
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Current Deferred Income Tax $ 271,987 $ 150,131
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Net Operating Loss (carryforward) 41,452 233,544
Non-Compete Agreement (26,976) (17,829)
Valuation Allowance 0 (116,772)
Other, Net 111,932 88,815
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Non Current Deferred Income Tax $ 126,408 $ 187,758
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</TABLE>
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<PAGE>
Tax Provision for the three and six months ended June 30, 1997:
<TABLE>
<CAPTION>
Three Month Six Month
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<S> <C> <C>
Federal Provision $ 100,073 $ 146,815
State Provision 29,140 42,707
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129,213 189,522
Utilization of NOL (141,929) (192,092)
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Income Tax Benefit $ (12,716) $ 2,570)
</TABLE>
The tax benefit for the six months ended June 30, 1997 was $2,570 of which
$57,936 and $(60,506) is current expense and deferred tax benefit, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Results of Operations
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Net Sales for the three and six-month periods ended June 30, 1997 increased
$503,540 and $1,276,927 respectively, to $3,435,134 and $6,272,567 as compared
to $2,931,594 and $4,995,640 for the same period in 1996. This increase is due
to increased distribution to on- and off-course shops caused by additional sales
representatives and territories where the company held little presence, more
cosmetically appealing products and a competitive pricing structure.
Gross profit as a percentage of net sales decreased to 31% for the six-month
period ended June 30, 1997 as compared to 33% for the same period in 1996. This
decrease continues to be due to the shift in product mix wherein lower price
point model golf clubs accounted for 57% versus 48% of total sales for the
periods ended June 30, 1997 and June 30, 1996, respectively.
Selling expenses for the three- and six-month periods ended June 30, 1997
increased $4,265 and $1,998 , respectively, as compared to the same period in
1996. Although total costs remained consistent with prior years, there were
significant shifts in several costs wherein: 1) Sales salaries, payroll taxes
and sales travel expense decreased a total of $104,552 for the six-months ended
June 30, 1997 due to the elimination of three salesmen in 1996 and early 1997,
and 2) Sales Commissions increased $157,593 due to an increased sales
representative force as well as sales volume.
General and Administrative expenses decreased $24,929 and $70,318, for the
three- and six-month periods ended June 30, 1997 respectively, as compared to
the same periods in 1996. This decrease was primarily due to a reduction in
audit fees for the year ended December 31, 1996 as well as a reduction in
medical insurance premiums due to the Company's change in insurance carriers.
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Interest expense for the three- and six-month periods ended June 30, 1997,
increased $30,736 and $37,375 respectively, as compared to the same periods in
1996. This increase was due to an increase in average borrowings from
$2,418,696 and $2,127,152 in 1996 to $3,025,853 and $2,708,843 in 1997 for the
three- and six month periods ended June 30, respectively.
Income taxes (benefit) for the three- and six-month periods ended June 30, 1997
were ($12,716) and ($2,570), respectively, as compared to $58,480 and $10,438
respectively for the same periods in 1996. As of June 30, 1997, the Company
utilized net loss carryforwards in the amount of its Federal income tax
provision (excluding the deferred benefit) of $192,092.
Financial Condition and Liquidity
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The Company's working capital at June 30, 1997 increased $550,909 or 23% from
December 31, 1996. The Company's current assets increased $1,668,034 from
December 31, 1996, consisting of primarily an increase of $1,040,467 in
accounts receivable. The increase in accounts receivable is the result of
higher sales during the six-month period ended June 30, 1997 as compared to the
six-month period ended December 31, 1996. This increase is customary due to the
seasonality of the business.
Inventory at June 30, 1997 increased $577,720 from December 31, 1996 due to the
cyclical demand of the market place. However, inventory levels at June 30, 1997
were $227,017 greater than June 30, 1996 due to continued inventory purchasing
in an effort to meet increased demand as evidenced by a 25% increase in sales
for the six-month period ended June 30, 1997 as compared to the same period in
1996.
Current liabilities increased $1,117,125 primarily due to an increase in short
term borrowings of $662,540 resulting from higher accounts receivable and
inventory levels at June 30, 1997 as compared to December 31, 1996.
The Company has a revolving line of credit with PNC Bank with a maximum credit
limits of $4,000,000 subject to a borrowing base of 70% of eligible accounts
receivable and depending on the time of year, 40% to 50% of qualified inventory.
The credit facility expires December 31, 1997. The Company is currently
negotiating with PNC Bank for modifications to, and an extension of, this credit
facility.
At June 30, 1997, the Company had $722,019 available under its line of credit
and $0 in letters of credit written but not drawn as compared to $405,189
available and $137,783 letters written at June 30, 1996.
-8-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
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At the Company's Annual Meeting of Shareholders held on June 5, 1997, the
shareholder's voted upon and elected directors.
Elections of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
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<S> <C> <C>
Douglas A. Buffington 1,959,893 10,730
Richard M. Maurer 1,959,893 10,730
Robert L. Ross 1,959,893 10,730
Mary Ann Jorgenson 1,959,893 10,730
Frederick B. Ziesenheim 1,959,893 10,730
</TABLE>
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit*
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<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company dated June
28, 1991 (incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1991).
3.2 Amended and restated By-laws of the Registrant dated December 6, 1991
(incorporated by reference to Exhibit 3.2 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991).
4.1 Common Stock Purchase Warrant in favor of Wesmar Partners dated February
28, 1988, (incorporated by reference to Exhibit 4.4 of the Registrant's
Registration Statement No. 33-37371 on Form S-3).
4.2 Common Stock Purchase Warrant in favor of Wesmar Partners dated February
28, 1988, (incorporated by reference to Exhibit 4.5 of the Registrant's
Registration Statement No. 33-37371 on Form S-3).
4.3 Stock Option Agreement between the Registrant and Wesmar Partners dated
February 29, 1988, (incorporated by reference to Exhibit 4.6 of the
Registrant's Registration Statement No. 33-37371 on Form S-3).
4.4 Credit Agreement and Security Agreement between the Registrant and
Midlantic Bank, National Association dated December 29, 1994 (incorporated
by reference to Exhibit 99 of the Registrant's Current Report on Form 8-K
dated December 26, 1994).
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
4.5 United States Patent No. 4,203,598 issued to the Registrant (incorporated
by reference to Exhibit 10.3 of the Registrant's Registration Statement No.
33-16931 on Form S-1).
10.0 Agreement between the LPGA Tournament Players Corporation and the
Registrant dated July 31, 1991 (incorporated by reference to exhibit 4.11
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991).
10.1 Lease Agreement between the registrant and 12 Gloria Lane Limited
Partnership dated June 22, 1989 (incorporated by reference to exhibit 10.6
of the Registrant's Registration Statement No. 33-37371 on Form S-3).
10.2 Modification of Lease Agreement between the Registrant and 12 Gloria Lane
Industrial Partnership dated October 3, 1995 (incorporated by reference to
Exhibit 10.2 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 1995).
10.3 1984 Incentive Stock Option Plan of the Registrant dated February 10, 1984
(incorporated by reference to Exhibit 10.7 to the Registrant's Registration
Statement No. 33-16931 on Form S-1).
10.4** Employment Agreement between the Registrant and Randy A. Hamill dated
July 1, 1991, (incorporated by reference to Exhibit 10.9 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991).
10.5 Consulting Agreement between the Registrant and MR & Associates dated
January 1992 (incorporated by reference to exhibit 10.10 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992).
10.6 Amendment of Consulting Services Agreement between the Registrant and MR
and Associates effective as of February 1, 1996 (incorporated by reference
to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
10.7** 1992 Stock Plan for Independent Directors of S2 Golf, Inc. dated December
28, 1992 (incorporated by reference to Exhibit 10.11 of the Registrant's
Annual Report on form 10-K for the year ended December 31, 1992).
10.8 Agreement between the Vardon Golf Company and the Registrant dated October
4, 1993 (incorporated by reference to Exhibit 10.9 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 24, 1993).
10.9** Employment Agreement between the Registrant and Douglas A. Buffington
dated January 1, 1995 (incorporated by reference to Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994).
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
12 Amended and Restated Licensing Agreement between Ladies Professional Golf
Association and the Registrant dated July 1, 1996 (incorporated by
reference to Exhibit 12 of the Registrant's Annual Report Form 10-K for the
year ended December 31, 1996).
27 Financial Data Schedule.
* In the case of incorporation by reference to documents filed by the Registrant
under the Exchange Act, the Registrant's file number under the Act is 0-14146.
** Management contract or management compensatory plan or arrangement.
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
S2 GOLF INC.
August 1, 1997 /s/ Douglas A. Buffington
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Dated: By:
Douglas A. Buffington
President and Chief
Operating Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 111,190
<SECURITIES> 0
<RECEIVABLES> 3,656,682
<ALLOWANCES> (186,535)
<INVENTORY> 2,450,921
<CURRENT-ASSETS> 6,329,991
<PP&E> 738,555
<DEPRECIATION> 639,662
<TOTAL-ASSETS> 6,726,623
<CURRENT-LIABILITIES> 3,377,178
<BONDS> 0
0
0
<COMMON> 22,147
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,726,623
<SALES> 6,272,567
<TOTAL-REVENUES> 6,272,567
<CGS> 4,320,637
<TOTAL-COSTS> 1,313,012
<OTHER-EXPENSES> 5,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162,077
<INCOME-PRETAX> 471,337
<INCOME-TAX> (2,570)
<INCOME-CONTINUING> 473,907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 473,907
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
